by David Fleming

As Covid-19 spreads more extensively across the UK causing widespread economic disruption, accountants and in-house finance teams will be firmly positioned on the frontline over the coming months.

Whether you are responsible for your organisation’s financial health or private practice where your clients are coming under increased financial pressure, a number of effective options are available following the recent Budget and subsequent updates from the chancellor.

Coronavirus job retention scheme

The most dramatic intervention from the UK government was announced on Friday 20 March, under which government grants will cover 80% of the salary of PAYE employees who would have been laid off as a result of the crisis. It is backdated to 1 March and is expected to be up and running in April. It is anticipated to last for three months.

To qualify, employers need to identify those employees affected and advise them of a change of status to ‘furloughed workers’. Once the information has been submitted to HM Revenue & Customs (HMRC), it will reimburse 80% of that employee’s wage up to a cap of £2,500 per month.

Changes in HMRC ‘Time To Pay’ arrangements

Businesses also need to take advantage of the recent expansion of HMRC’s Time To Pay (TTP) scheme. A TTP arrangement with HMRC is a structured payment plan for any outstanding tax obligations, allowing businesses and the self-employed to defer tax payments over an agreed period of time.

The changes outlined in the Budget offer businesses more generous payment terms, with firms now having more time to pay VAT, payroll taxes and Corporation Tax. Furthermore, as part of a package of measures, the government has launched a Coronavirus Business Payments Support Service to help businesses in arrears with existing tax liabilities up to circa £100,000. Larger liabilities are expected to be dealt with on a case-by-case basis. Additionally, a dedicated helpline has been set up to support businesses that are concerned about not being able to pay their tax due to the financial impacts of Covid-19.

In addition, the chancellor has announced that all VAT liabilities due from 20 March to 30 June 2020 will be postponed. VAT refunds and reclaims will be paid by HMRC as normal. Taxpayers will be given to the end of the 2020/21 tax year to pay any liabilities accumulated during the deferral period.

For finance directors, controllers and private practice accountants alike, these will become crucial tools if organisations or clients are struggling to generate enough cash to meet operational costs. A well organised and structured TTP arrangement, alongside the VAT support provided, can be a key component of a successful turnaround plan that ensures cash flow and safeguards jobs.

Communicate with banks

A further option that should be considered is communicating with banks and taking advantage of the numerous packages they are putting together to support businesses, particularly for those in the small and medium-sized enterprises (SME) and mid-market.

The government has also launched the Coronavirus Business Interruption Loan Scheme (CBILS), which has replaced the existing Enterprise Finance Guarantee (EFG) loan scheme, to support long-term viable businesses who need additional finance for cash flow issues.

The chancellor has said: ‘This scheme will be delivered by the British Business Bank and will launch in “a matter of weeks”. Whilst the British Business Bank will provide a guarantee of 80% of the loan, the loans are expected to be approved and made by the clearing banks and other authorised lenders. There will be per lender caps and the scheme will support loans of up to £5m with interest deferred for 12 months.’

Business rates and grants

In the Budget it was announced that retail, hospitality and leisure firms with a rateable value of less than £51,000 will not be paying business rates this year. The chancellor has now gone one step further by providing an additional cash grant of up to £25,000 per business.

‘Additionally, I am also today extending the business rates holiday to all businesses in those sectors, irrespective of their rateable value,’ the chancellor went on to say.

‘That means every single shop, pub, theatre, music venue, restaurant – and any other business in the retail, hospitality or leisure sector – will pay no business rates whatsoever for 12 months, and if they have a rateable value of less than £51,000, they can now get a cash grant as well.’

Don’t be afraid to seek help

For those businesses with strong balance sheets or access to borrowings, many of these tools will be off their radar. The trouble is that far too many companies lack this margin of safety and, as economic uncertainty arises, accountants need to quickly educate themselves on how schemes such as TTP can work to benefit SMEs.

Since the outbreak of Covid-19, we have seen an unprecedented demand for our services, and we are assisting companies with strategies in order to avoid insolvency. This is while we wait for information on how to access the new support from the British Business Bank and government.

The challenge now for government is the speed at which many of these schemes are implemented and rolled out, and how they reach UK businesses facing imminent cash flow difficulties. Failure to do so may mean companies may in turn have to look at more formal insolvency options.

Duff & Phelps has a team of experts that understand the challenges being faced, so we would urge those accountancy firms and businesses experiencing challenging trading conditions in the face of Covid-19 to reach out to us.

As at 22 March 2020

David Fleming is managing director, advisory, Duff & Phelps